Skip to main content

Vol. 73, No. 2
Posted 1991-03-01

An Introduction to Complete Markets

by Mark D. Flood

Mark D. Flood brings an important component of economic theory down to earth. The theory of complete markets is the cornerstone of modern mathematical economics. Its most fruitful applications have been to models of economic equilibrium, but its range is more general. One area in which the theory has important practical applications is in the design and analysis of marketable securities: the theory makes sense of complex "financial innovations,” such as options on a stock index portfolio. Flood begins by developing the context of complete markets in a simple gambling example, demonstrating how the theory incorporates uncertainty in a systematic fashion. The upshot is that a complete system of markets is superior to one in which the opportunities for exchange are restricted. Next, the context of dollar payoffs is generalized to uncertain payoffs in multiple commodities over many periods, the starting point for the Arrow-Debreu model of general equilibrium. Finally, some financial market applications are considered: the markets for cotton futures and stock index options.



Related Content


Subscribe to our newsletter


Follow us

Twitter logo Google Plus logo Facebook logo YouTube logo LinkedIn logo
Back to Top